The flow of credit for housing is now running $6.2 billion per month faster than it was a year ago, when the global financial crisis was hitting hardest.

Approvals for housing finance hit $23.847 billion per month in September, a level exceeded only on one previous occasion, in June 2007.

That was the month the sub-prime loans crisis really hit the headlines with the failure of two hedge funds run by Bear Stearns, which subsequently dragged the US investment bank to the brink of collapse the March, when it was snapped up for a pittance by JPMorgan Chase.

The low point for housing lending in Australia was reached in September 2008, when the better-known failure of Lehman Brothers pushed the world’s financial system to the brink.

In that month, the value of housing finance approved dropped to $17.616 billion, its lowest for two years.

Now, with an increase of $1.097 billion from August, the level of lending is nudging a record high.

Within the total, loan approvals for homebuyers reached $17.596 billion in September, a rise of $5.259 billion from a year before, while approvals for investment loans were up by $970 million at $6.251 billion.

Straddling both categories, lending to buy or build new housing jumped by $1.162 billion or 62.5 per cent from September 2008, reaching a record high of $3.027 billion.

The rise was even steeper than the $644 million/month fall over the 12 months before that.

The factors behind this are clear enough - the fall in interest rates which began late last year and which were still intact in September, the restoration of confidence among lenders, the copious supplies of cash by the Reserve Bank of Australia (RBA) to the banking system and the enhanced first home owners scheme.

It seems plausible that the partial phase-out of the enhanced grant to first-timers at the end of September was responsible for part of the rise in lending in the month - the proportion of home-buyers claiming to be first-timers edged up to 34.8 per cent of the total in September - excluding refinancing - from 33.5 per cent in August.

Even so, the increased proportion of first-timers in the total, even if it genuinely represented buyers who would otherwise not have been in the market, would only account for around one tenth of the total increase in home loan approvals over the year to September.

In other words, this is a genuine recovery.

And it will help to sustain the recovery in the wider economy and, as a result, support the case for recent and futures interest rate hikes.

One downside, from the policy-makers’ perspective, is that it suggests housing prices are likely to continue growing, perhaps at a faster pace than the 6.2 per cent reported by the ABS data over the year to September.

But that, even though it may give the appearance of the early stages of a housing price bubble, should not prompt an even more aggressive rise in rate by the RBA.

In recent speeches, the RBA has made it clear land supply bottlenecks and costs are behind the squeeze on housing prices, and that these are not things the RBA can do anything about.

AAP